Economic Update - December 2016
​In this report, we discuss developments on Nigeria’s macroeconomic environment over December 2016 as well as delineate our outlook on key variables.
- Budget 2017: Bridge in the air or palpable realism?: In mid-December, President Buhari presented the 2017 federal budget tagged “Budget of Recovery and Growth†to the National Assembly, with the FGN proposing to spend a record N7.298 trillion (+20% YoY). The sizable increase in the budget is consistent with the expansionary fiscal posture adopted in 2016 to offset recessionary impact of oil price shock on the economy.
- Shaky NGN outlook as CBN resumes playing ostrich: Extending the pattern over the past four months, the naira continued to hold steady at the interbank in December N305/$, though at the parallel market, the currency tumbled further (-5% MoM to N487/$). The fresh parallel market pressures emanated after Travelex slashed weekly dollar sales to BDC operators by 46% to $8,000.
- Food inflation defies main harvest again: The National Bureau of Statistics (NBS) reports that headline inflation rose 18.5% YoY in November—15bps higher than in prior month and missing our call for a pullback to 18.4% YoY. Disaggregating to sub-components, food and core inflation rose 17.19% YoY and 18.22% YoY respectively (vs. 17.08% and 18.09% in prior month).
- Increased fiscal paper supply points to near term yield elevation: The naira yield curve extended its contractionary trend for the third consecutive month in December (-7bps MoM to 16.91%) largely reflecting tightening on short dated instruments (-16bps MoM to 18.11%) as bond yields held steady (+1bps MoM to 15.71%).
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